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South Asia Investor Review is focused on reporting, analyzing and discussing the economy and the financial markets of countries in South Asia, including Pakistan, Bangladesh and Sri Lanka. For investors looking to invest in emerging markets beyond BRIC countries (Brazil, Russia, India and China), this blog is designed to help international investors looking to learn about investing in South Asia with focus on Pakistan. Riaz has another blog called Haq's Musings at http://www.riazhaq.com

Pakistani diaspora bucked the 2016 global decline in remittances with a modest 2.8% increase over 2015, according to a recently released World Bank report. An estimated $19.8 billion remitted to Pakistan amounted to 6.9% of the country's GDP. This is a welcome relief coming on the heels of the State Bank of Pakistan report indicating the country's current account deficit widened to $6.13 billion or 2.6% of GDP in the first 9 months of fiscal 2017.

Meanwhile, global remittance flows to developing countries registered a
decline for two successive years, said the report. Remittances declined
by an estimated 2.4 percent, to $429 billion, in 2016,
after a decline of 1 percent in 2015. India, the largest
remittance-receiving country worldwide, led the fall
with a decrease of 8.9 percent in remittance inflows.

South Asia Region:

Remittances to
India declined by 8.9 percent in 2016, to $62.7 billion, ranking the country as the top recipient of such inflows. In Bangladesh, remittances declined by an estimated
11.1 percent in 2016. In Pakistan, the 12 percent growth
witnessed in 2015 moderated to an estimated 2.8
percent in 2016. Nepal experienced unusually high
growth in remittances, at 14.3 percent in 2015, due to
emigrants sending financial assistance after the earthquake.
In 2016, remittance flows to Nepal declined by
an estimated 6.7 percent from the previous year’s high
level. In Sri Lanka, remittance growth was estimated at
3.9 percent in 2016.

Next Year Forecast:

The World Bank says the remittance growth in the region is
projected to remain muted, because of low growth and
fiscal consolidation in GCC countries with low energy prices. An increase
of only 2.0 percent is expected in 2017. Bangladesh’s
remittance growth in 2017 is forecast at 2.4 percent,
India’s at 1.9 percent, Pakistan’s at 1.4 percent, and Sri
Lanka’s at 1.3 percent.

Summary:

World Bank report says Pakistani diaspora bucked the 2016 global decline in remittances with a modest 2.8% increase over 2015. An estimated $19.8 billion remitted to Pakistan amounted to 6.9% of the country's GDP. This is a welcome relief coming on the heels of the State Bank of Pakistan report indicating the country's current account deficit widened to $6.13 billion or 2.6% of GDP in the first 9 months of fiscal 2017. Future growth in remittances is likely to remain muted. Slowing growth in such inflows will further increase pressure on Pakistan to work on enhancing exports and attracting more foreign direct investment.

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Rising imports and falling exports and remittances pose threat of new forex crisis

https://www.ft.com/content/3ae64c9a-ffd8-11e6-96f8-3700c5664d30

China has provided Pakistan with over $1bn in bailout loans since June last year, as the south Asian country looks to stave off a foreign currency crisis that could yet lead to another multinational rescue package.

State-backed Chinese banks have come to Pakistan’s rescue on two separate occasions, officials have told the Financial Times, with $900m coming in 2016, followed by another $300m in the first three months of this year.

The loans demonstrate the perilous fragility of Pakistan’s stocks of foreign currency, which have been depleted in the past few months as imports have risen while both exports and inbound remittances from Pakistanis abroad have fallen.

China’s financial help also underlines the increasingly close, if complex, relationship between the two Asian neighbours.

In 2013, Pakistan secured a $6.6bn loan from the International Monetary Fund after being faced with a similar balance of payments crisis. In the same year, it quietly took advantage of a currency swap line with the People’s Bank of China, the central bank, to shore up its reserves.

Islamabad made the final repayment on the IMF loan last year, prompting optimism from policymakers in Pakistan and abroad that the country was finally on the path to economic stability. Christine Lagarde, the head of the IMF, called it a “moment of opportunity” for the country.

In recent months however, the country’s trade deficit has widened, depleting its foreign reserves once more.

Figures from the State Bank of Pakistan show the country had $17.1bn of net reserves at the end of February, down from $18.9bn at the end of October and a peak of $25bn several years ago. A burgeoning trade deficit with China — which has doubled in recent years, according to data from the Pakistan Business Council — is a big part of the problem.

This has forced the country to seek emergency loans from outside sources to keep being able to repay older loans made in foreign currencies.

Of the $1.2bn from the Chinese institutions, $600m came from the government-run China Development Bank and another $600m from the state-owned Industrial and Commercial Bank of China, the only mainland bank to have a branch in Pakistan. Policy banks such as CDB often act on behalf of the central bank.

One Pakistani official said: “China keeps a very close eye on our economic trends and they're happy to come to our help wherever needed.”

The recent deterioration is expected to continue, however, with China’s investment plans prompting a surge of imports from that country. As a result, experts are now warning Pakistan is likely to have to return to international institutions such as the IMF for further support.

“Technically speaking we should have gone back to the IMF in January, but ministers are likely to try and wait until after the election [which is planned for 2018],” said Vaqar Ahmed, deputy executive director of the Islamabad-based Sustainable Development Policy Institute.

One member of the ruling PML-N party confirmed to the Financial Times that ministers were loath to return to the IMF until after the election in an effort to limit the political fallout.

“The IMF is a politically volatile issue in our country. If we go to the IMF to deal with our needs, that will send a very negative political signal and the opposition [parties] will use that against the government,” the person said.

Finance Minister Ishaq Dar has announced that the government will set up Pakistan Infrastructure Bank with a paid-up capital of $1 billion, which will give financing to private investors for development projects.

Pakistan government and the International Monetary Fund (IMF) would have 20% shares each in the bank and the rest would be held by global organisations such as the International Finance Corporation, he said.

AJK plans tourism corridor along CPECHe was speaking at a briefing held for the Pakistani media towards the end of his visit to Washington DC during which he attended spring meetings of the IMF and the World Bank.

Dar also revealed that the government would soon be launching Pakistan Development Fund (PDF) and its shares worth Rs100 billion would be offered to Pakistani diaspora in order to channelise their remittances effectively.

Later, these shares will be listed on the Pakistan Stock Exchange. “After the success of Sukuk (Islamic bonds), the PDF will be another attractive investment for overseas Pakistanis,” he remarked.

Giving a detailed round-up on the plenary sessions with the IMF and World Bank, the minister said there was positive sentiment about the tremendous economic rebound experienced by Pakistan over the last four years.

“Pakistan was on the verge of bankruptcy in 2014 and today it is likely to achieve approximately 5% growth during the current financial year,” he said. “Both IMF and World Bank are on the same page with the Pakistani government in these projections.”

Promotion of it: Work on innovation centres begins

Global credit rating agencies have upgraded the rating of Pakistan from negative to stable and from stable to positive in the last four years to an extent that the country is likely to be included in G-20 countries by 2030.

Preliminary data on crops indicates that agriculture growth will rebound in FY17.The production of major kharif crops, including cotton, sugarcane, and maize isestimated to increase significantly this year. The output of major rabi crop, i.e.,wheat is also expected to remain close to the last year’s bumper crop of 25.4million tons on the back of timely and widespread rains.7Besides improvedwater situation (from January 2017 onwards), an increase in fertilizer off take (33percent higher), and higher credit disbursement (up 32 percent) during Rabiseason also point to a better performance of the crops subsector.Encouragingly, LSM growth has picked up momentum in Q2-FY17 (rising by 5.8percent YoY). This partly compensated the sluggish Q1-FY17 growth of 2.1percent. As a result, the cumulative growth during H1-FY17 increased to 3.9percent, same as the last year. The major contribution to LSM growth during H1-FY17 came from food, steel, cement and pharmaceutical industries.

These industries largely benefited from accommodative monetary and fiscalpolicies; improved energy supplies; better availability of raw materials (e.g.,sugarcane); rising domestic demand (particularly for cement and steel, owing toongoing CPEC-related power and infrastructure projects); and clarity on drugpricing mechanism. In addition, the recently announced export package wouldalso provide much needed support to export industries, especially textile – thehistorical mainstay of LSM growth.On the other hand, the available information on services sector indicators pointsto a mixed performance. Healthy trends in transport (given the surge in sales oftrucks, buses, and POL products); increased (external) trade volumes along withbetter output of agriculture and industry (having positive spillover for wholesaleand retail trade); significant increase in bank credit; and a rise in 3G/4Gsubscription base (27 percent) during H1-FY17, all indicate towards an uptick inthe services sector’s performance. At the same time, losses of Public SectorEnterprises (PSEs), and a decrease in banks’ profitability, act as potential drags.On balance, however, the services sector is expected to keep up last year’s growthmomentum (see Chapter 2 for details).Meanwhile, ongoing investments in energy and infrastructure sectors (and strongtransport sector activity) resulted in a sharp increase in import demand, especiallyfor capital goods and raw materials. Led by higher imports of machinery (powerand construction) and petroleum (including LNG), the total import bill grew by6.0 percent during H1-FY17, compared to 8.9 percent decline in thecorresponding period last year.8

This surge in imports was partly a result of rising commodity prices, especiallycrude and palm oil. This, combined with the non-receipt of CSF in H1-FY17 anddecline in exports and remittances, resulted in the almost doubling of the currentaccount deficit to US$ 3.5 billion during first half of the year. (Here, it is worthmentioning that the receipt of CSF in Q3-FY17, and recently announced packagefor exports may help balance of payments going forward.)Encouragingly, available financial inflows were more than sufficient to financethe higher current account deficit. Major foreign exchange inflows included US$1 billion from a Sukuk and net loans of US$ 1.4 billion (including US$ 900 million of commercial borrowings). In addition, net FDI increased by 10.5percent to US$ 1.1 billion during H1-FY17, from US$ 978 million last year.

The economic growth outlook for Pakistan is projected to trend up to 5.2 to 5.4 per cent in both 2017 and 2018, forecasts the latest Economic and Social Survey of Asia and the Pacific 2017.Private consumption and public investment would drive the economy, supported by higher consumer credits, improved security conditions and ongoing infrastructure projects under the China-Pakistan Economic Corridor (CPEC), says the survey which focused on ‘Governance and Fiscal Management’.

Increased capital inflows from China to finance projects under CPEC have helped generate foreign exchange receipts, although imports of transport and construction-related items also increased, the survey by the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) notes.

The survey says that private investment was stronger in Pakistan as CPEC helped attract more foreign investment.

On the supply side, the large-scale manufacturing sector should benefit from greater energy security and a notable cut in gas prices for industrial use. Similarly, the agricultural sector is likely to improve, with expanded production of cotton, sugarcane and maize, the survey notes.

Meanwhile, a rebound in global oil prices and an upward adjustment in domestic petrol prices would push up inflation during the fiscal year 2017-18 from 5pc to 5.5pc, which is still within the official target of 6pc.

Nearly 90% families in China today have a refrigerator. What about India?The 2016 ICE 360° survey showed that a little less than 30% of Indian families have a refrigerator. At first glance, we may conclude that a fridge is still an aspirational product that doesn’t fit into the majority of Indian families’ budgets. That reasoning however, does not hold up.The same survey showed that even in the top 20% of the richest Indian families, only six out of 10 families have a fridge. This suggests that constraints other than affordability are at work here that influence households’ decision to buy a refrigerator.While a threshold level of income is a necessary condition for the purchase of a refrigerator, it is not the sufficient condition.The 2011 census shows that nearly twice the number of households in rural India own a two-wheeler, which costs much more than a fridge.This kind of hierarchical pattern in the ownership of a two-wheeler and a fridge in India is unlike in any other major economy.So Women can ChillIn a March 2017 paper in the Journal of Quantitative Economics (From Income to Household Welfare: Lessons from Refrigerator Ownership in India, by Sowmya Dhanaraj, Vidya Mahambare and Poonam Munjal), this apparent puzzle is explored.Following a robust statistical methodology and controlling for the impact of a number of other determinants such as regional influences, two factors stood out. One, a refrigerator is unique among all energy-using consumer durables.Unlike the television or air-conditioner, the decision to purchase a fridge depends not only on the access but also reliability and duration of residential power.Unlike a TV, a fridge is of little use unless uninterrupted power supply is guaranteed. Nearly 43% of rural households and 13% of urban households in India either do not have access to electricity, or receive electricity for less than eight hours. This makes it a major constraint to buy a durable such as a refrigerator. In fact, only around half of India’s population receives residential power for more than 16 hours a day.Two, unlike a TV, which is a leisure good, a refrigerator disproportionately benefits women in the family.As a result, a decision to purchase a consumer durable is also driven by their bargaining and decision-making power within a family. And what would tilt the intra-household bargaining power in favour of women? It is largely the function of the education level of women.

Per Capita Income in dollar terms has witnesseda growth of 6.4 percent in FY 2017 ascompared to 1.1 percent last year. The percapita income in dollar terms has increasedfrom $ 1,531 in FY 2016 to $ 1,629 in FY2017. Main contributing factors for the rise inper capita income are higher real GDP, growth,low population growth and stability of PakRupee.

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Real GDP growth was abovefour percent in 2013-14 and has smoothlyincreased during the last four years to reach5.28 percent in 2016-17, which is the highest in10 years.

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The agriculture sector metits growth target of 3.5 percent, helped bygovernment supportive policies and byincreased agriculture credit disbursements.During 2015-16, the agriculture creditdisbursement was close to Rs 600 billion whileduring 2016-17, the target was raised to Rs 700billion. During July-March 2016-17, thedisbursement was observed to be 23 percenthigher as compared to the previous year. Thesedevelopments, along with the Prime Minister’sAgriculture Kissan Package together with otherrelief measures have started yielding positiveresults.The large-scale manufacturing output isprimarily based on Quantum IndexManufacturing (QIM) data, which show anincrease by 5.06 percent from July 2016 toMarch 2017. Major contributors to this growthare sugar (29.33 percent), cement (7.19percent), tractors (72.9 percent), trucks (39.31percent) and buses (19.71 percent). Highgrowth of sugar is based on production of 73.9Million Tons of Sugarcane as compared to 65.5million tons last year, which represents anincrease by 12.4 percent.Large Scale Manufacturing growth has pickedup momentum and posted a strong 10.5 percentgrowth in the month of March 2017 comparedto 7.6 percent in March 2016. The YoY growthaugurs well for further improvement in growthduring the period under review.On average, the LSM growth stood at 5.06percent during July-March FY 2017 comparedto 4.6 percent in the same period last year. Thesectors recording positive growth during JulMarFY 2017 are textile 0.78 percent, food andbeverages 9.65 percent, pharmaceuticals 8.74percent, non-metallic minerals 7.11 percent,cement 7.19 percent, automobiles 11.31percent, iron & steel 16.58 percent, fertilizer1.32 percent, electronics 15.24 percent, paper &board 5.08 percent, engineering products 2.37percent, and rubber products 0.04 percent.Pakistan is bestowed with all kinds of resourceswhich also include minerals. Pakistan possessesmany industrial rocks, metallic and nonmetallic,which have not yet been evaluated. Inthe wake of the 18th Amendment, provincesenjoy great freedom to explore and exploit thenatural resources located in their authority, withthe result that they are currently undertaking anumber of projects using their own resources,or in collaboration with the federal governmentor with donors to tap and develop theseresources.The services sector recorded a growth of 5.98percent and surpassed its target which was setat 5.70 percent. Wholesale and retail tradesector grew at a rate of 6.82 percent. Thegrowth in this sector is bolstered by the outputin the agriculture and manufacturing sectors.The share of Agriculture, Manufacturing andImports in Wholesale and Retail Trade growthis 18 percent, 54 percent and 15 percentrespectively. The Transport, Storage andCommunication sector grew at a rate of 3.94percent. Finance and insurance activities showan overall increase of 10.77 percent, mainlybecause of rapid expansion of deposit formation(15 percent) and demand for loans (11 percent).

For 16 years, Mr Jobby Peter has supported his family back home in India by working in the bustling, oil-driven economies of the Gulf. In his most recent job, the 41-year-old welder was earning nearly US$500 (S$695) a month fabricating oil tanks in Dubai’s Jebel Ali Free Zone.But four months ago, he abruptly found himself unemployed when he and 40 co-workers, all from south Asia, were told their services were no longer required. Low oil prices had hit orders, and the fabrication unit was being shut down.“They told us, ‘All of you have to go back because we have no demand any more,’” said Mr Peter, who was given three months’ salary and a ticket back to India.Today, he is working occasionally in a Cochin shipyard while trying to get back to the Gulf. One recent Saturday, he was among nearly 1,000 people queueing for interviews with construction companies recruiting skilled workers for a clutch of welding jobs in the region. “I am trying,” he said. “I am hopeful.”But Mr Peter’s hopes may be misplaced. For nearly two decades, millions of workers from India and other south Asian countries, including Nepal, Bangladesh and Pakistan, have looked to the oil-driven economies of the Gulf Co-operation Council for jobs and salaries that are unavailable at home. But low global oil prices and cash-strapped Gulf countries’ efforts to find employment opportunities for their own citizens, are reversing that tide.Construction work has been hit by a severe liquidity squeeze, leading to lay-offs of foreign workers, some of whom have been left stranded in the desert by their former employers. Meanwhile, service industry jobs previously undertaken by foreign workers, such as positions as shop assistants and mobile phone repair technicians, have been reserved for locals as Gulf economies pare their social welfare schemes.For foreign workers who still have jobs, wages are also under pressure as employers attempt to freeze salaries and recruitment agencies look to poorer countries to hire workers.“Wages in the Gulf will come down,” said Mr S Irudaya Rajan, a migration expert at Trivandurum’s Centre for Development Studies. “They will replace people with those that are willing to work for less, and that is where you will find remittances coming down.”Migrant workers’ remittances to south Asia fell 6.4 per cent last year after years of steady increases. Remittances to India slumped 8.9 per cent in 2016 – the second consecutive year of decline – to US$62.7 billion, down from US$72 billion two years earlier.Although remittances account for just 2.8 per cent of India’s gross domestic product (GDP), the decline is a blow to the southern state of Kerala, where they make up 36 per cent of the local economy.“There is no household that doesn’t have some direct or indirect relationship to migrant workers in the Gulf,” said Mr Shashi Tharoor, a member of the national parliament from Kerala.“Without this kind of money coming in, a lot of people’s lives are going to be seriously affected. We are going to be facing a very serious crisis if this trend continues.”

Pakistan's economic lifeline is its remittances. A staggering $2billion from overseas Pakistanis per month on an average is a blessing in disguise for the cash-starved economy and has widely helped in balancing payments towards imports, especially oil. They have acted as a catalyst in growth and investments. Undisputedly, it is one of the primary sources of foreign exchange reserves for the country and for an economy, which is ridden with inflation and slump in exports, the annual subscription of more than $25 billion acts as its backbone.

The good point is that despite somersaults on the global economic level and a nosedive, Pakistanis have stood fast in retaining their culture of remitting back home, and have widely entrusted the country's banks and other legal avenues for transfer of funds. Despite a wide gap in the dollar rates in open and banking markets, overseas Pakistanis preferred to send money mostly through the banking channel. This reflects their confidence in the government, as well as banks operating in Pakistan. The State Bank of Pakistan, in one of its recent reports, said that Pakistan has fared relatively better than other regional countries concerning foreign remittances.

Estimates say an average of $1.7 to $1.9 billion is received on a monthly basis, which accounts for a staggering $22 billion per annum. Most of the remittances are from the Middle East and Gulf countries, especially Saudi Arabia, the UAE, and Oman. Payments from all important destinations, except Saudi Arabia, showed positive growth. Inflows from the kingdom declined 7.5 per cent during the last fiscal year to the tune of 5.5 per cent. Nonetheless, Pakistan received $2.5 billion from Saudi Arabia in the year 2017. The second highest inflow is from the United Arab Emirates, which increased 1.13 per cent to $2.2bn.

A silent but sizeable chunk of remittances, although on a quarterly and six-monthly basis, are also registered from the United States, the European Union, South Africa and Australia. Many of the Far East Asian countries, especially Malaysia and Hong Kong, Korea and Japan also are potential remittances pockets. Remittances from the US have also seen an upward trend by around 10 per cent, to cross the barrier of one billion dollars per quarter. Similarly, inflows from the UK also recorded an increase of 23 per cent to $1.35 billion.

This primarily acts as seed money for the country's balance of payments, and to a great extent compensates for lack of foreign investment and slowdown in portfolio investments. The pre-budget Economic Review, however, estimated that remittances could grow by 50 per cent if the government provides due incentives to its non-resident citizens, and ensures that their foreign exchange is safe and reusable in the same currency. Likewise, remittances directly deposited in Pakistani bank accounts can also get a boost and shoot up to $100 billion - a retained safe territory, if stringent measures are taken and assurances on withdrawals limits are waived.

The free flow of foreign currency in the form of remittances can lift the economy to new heights. Pakistani foreign currency accounts maintained abroad are in billions of dollars, and a submission in the Senate of Pakistan said that they account for around $800 billion. That money sooner than later should be in the mainstream of Pakistan economy, provided anti-money laundering policies get thumbs up.

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The Lahore studio will be led by Ammar Zaeem, cofounder of Pakistan’s mobile game studio Caramel Tech which already has a team of 50 engineers.
The move is a big investment into Pakistan as a tech hub, and it shows how the game business is expanding around the globe.

Cloudcade:

Founded by Di Huang in 2013, Cloudcade is known for its popular multiplayer game "Shop Heroes" that pits players against each other in a competition to create the best shop they can. If a player can make a better store and perform more tasks than his or her rivals, he or she wins.

The game is available on the Apple iOS App Store, Google Play, Samsung Galaxy Store, Amazon, Kongregate, and Facebook. It is now also supported on the Apple Watch.

43.5% of Indians, the highest percentage in the world, say they do not want to have a neighbor of a different race, according to a Washington Post report based on World's Values Survey.

About Pakistan, the report says that "although the country has a number of factors that coincide with racial intolerance – sectarian violence, its location in the least-tolerant region of the world, low economic and human development indices – only 6.5 percent of Pakistanis objected to a neighbor of a different race. This would appear to suggest Pakistanis are more racially tolerant than even the Germans or the Dutch".

Housing Discrimination:

It appears that there is a small but militant minority in Pakistan that is highly intolerant, but the vast majority of people are tolerant. My own experience as a former Karachi-ite is that there is little or no race or religion based housing segregation, the kind that is rampant in India where Muslims are not welcome in most Hindu-dominated neigh…

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Human Development in Pakistan:

UNDP’s Human Development Index (HDI) represents human progress in one indicator that combines information on people’s health, education and income.

Pakistan saw average annual HDI (Human Development Index) growth rate of 1.08% in 1990-2000, 1.57% in 2000-2010 and 0.95% in 2010-2017, according to Human Development Indices and Indicators 2018 Statistical Update. The fastest growth in Pakistan human development was seen in 2000-2010, a decade dominated by President M…

I am the Founder and President of PakAlumni Worldwide, a global social network for Pakistanis, South Asians and their friends. I also served as Chairman of the NEDians Convention 2007. In addition to being a South Asia watcher, an investor, business consultant and avid follower of the world financial markets, I have more than 25 years experience in the hi-tech industry. I have been on the faculties of Rutgers University and NED Engineering University and cofounded two high-tech startups, Cautella, Inc. and DynArray Corp and managed multi-million dollar P&Ls. I am a pioneer of the PC and mobile businesses and I have held senior management positions in hardware and software development of Intel’s microprocessor product line from 8086 to Pentium processors. My experience includes senior roles in marketing, engineering and business management. I was recognized as “Person of the Year” by PC Magazine for my contribution to 80386 program. I have an MS degree in Electrical engineering from the New Jersey Institute of Technology.
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